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Handling the Bank Bailouts

Photo by: epicharmus

As of this writing, the Citibank closed the previous day’s trading at $1.20 per share.  This gives them a market capitalization of just over $6 billion dollars.  Specifically, this means all the common stock of Citibank is worth $6 billion dollars.  In November, the US Government “injected” $20 billion and guaranteed $306 billion of Citibank’s assets.   Citibank has been “bailed out” repeatedly and has had a total of $45 billion of taxpayer money channeled to it.[1] This leads to one simple question:

How is Citibank Solvent?

Of course the answer is, it isn’t.  But that leads to the question:  how is its common stock still worth $6 billion? 

Currently the governmnet is propping up a company to retain value for investors who should have been wiped out already.  Sure they have been diluted by government injections, but that seems a poor punishment for investing in an utterly insolvent company.

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  1. NWAnews.com – Citigroup Deal 36% portion for U.S. []